Canada dollar flags as Bernanke boosts greenback

TORONTO (Reuters) - The Canadian dollar fell nearly 1
percent on Tuesday against a U.S. dollar that rallied after
comments from the head of the Federal Reserve that bolstered
the view that the Fed may raise U.S. interest rates this year.

Domestic bond prices rebounded from losses suffered early
in the session and closed mostly higher across the curve as
bird flu news out of the United States and financial jitters
sparked demand for more secure assets.

The Canadian dollar closed at C$1.0086 to the U.S. dollar,
or 99.15 U.S. cents, down from C$1.0012 to the U.S. dollar, or
99.88 U.S. cents, at Monday's close.

After snapping a three-week streak of gains last week, the
Canadian currency has pushed lower, including a 0.8 percent
decline on Monday and 0.7 percent drop on Tuesday.

The latest decline was pegged to the U.S. dollar's
strength, rather than anything specific to Canada. Fed Chairman
Ben Bernanke, in an address to a conference in Barcelona,
warned about the inflationary impact of a weak currency,
suggesting the central bank may raise rates to support the
dollar and staunch any inflationary pressure.

"There's one event that's pretty much driven the Canadian
dollar and that's the Bernanke comments," said Stewart Hall,
market strategist at HSBC Securities. "He certainly grabbed the
attention of currency markets and caused a fairly broad-based
(U.S.) dollar rally,"

The Fed has slashed its benchmark overnight lending rate by
3.25 percentage points since mid-September. The Bank of Canada
has lowered its key rate 1.50 percentage points to 3.00 percent
since the start of December and is expected to cut another 25
basis points on June 10.

Another drag on commodity-linked Canadian dollar were the
growing concerns about slowing global growth and how that could
weaken prices for the commodities that Canada exports. Oil
prices have steadily fallen from a record above $135 a barrel
reached last month.
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